Fitch Ratings on Monday affirmed Pakistan’s long-term foreign currency issuer default rating (IDR) at ‘B-’ with a “stable” outlook.
In its commentary on the rating, the global agency said it reflected progress on fiscal consolidation and macro stability measures, broadly in line with the ongoing IMF program and supporting its funding capacity. “Foreign exchange buffers rebuilt over the past year provide a cushion against the economic impact of the war in the Middle East, while Pakistan’s role as ceasefire broker may provide tangible benefits and partly offset external pressures,” it said, while noting the “key risk” posed by the country’s high exposure to the global energy price shock.
On the key drivers determining the rating, Fitch said support from the International Monetary Fund (IMF) was key. “The authorities reached a staff-level agreement with the IMF on the third review of Pakistan’s Extended Credit Facility and second review of the Resilience and Sustainability Facility in March 2026, unlocking a combined $1.2 billion if the agreement is approved by the IMF board,” it said.
“The program will continue to provide a key policy anchor, particularly for the fiscal framework, and will help mobilize additional multilateral and bilateral support,” it added.
The ratings agency noted that Pakistan sources up to 90% of its oil from the Gulf and has limited storage capacity. This, it said, heightened its exposure the Middle East conflict and constricted energy supply via the Strait of Hormuz.
“Fuel subsidies since early March have been funded by reallocating expenditure from other areas of the budget, while costs have been reduced by large pump-price hikes and the switch to a more targeted support scheme from April,” it said, while noting it expected the overall impact on the fiscal deficit to be contained.
The agency affirmed that higher global energy prices would raise inflation, especially amidst targeted subsidies and base effects. “We expect inflation to average 7.9% in FY26, above the FY25 level but well below the 23.4% in FY24,” it added.
On the policy rate, Fitch recalled the State Bank of Pakistan (SBP) had slashed it to 10.5% from its peak of 22%. “However, the term interbank rate had risen to about 100bp above the policy rate by early April, on inflation concerns tied to the tight energy supply,” it said, adding this would detract from GDP growth, which it estimated at 3.1% in FY26 due to improved confidence from lower borrowing costs.
Referring to Pakistan’s external financing needs, Fitch assumed debt amortizations to rise to $12.8 billion, or 2.9% of GDP, in FY26, up from almost $8 billion in FY25. These projections, it said, excluded $9.2 billion in bilateral deposits and loans that would likely be rolled over. “We expect debt to be financed mainly by IMF and other multilateral and bilateral inflows, followed by commercial financing,” it said, noting Pakistan plans to issue a panda bond this fiscal year.
According to Fitch, it expects the primary surplus to narrow to 2.1% of GDP in FY26. “This will follow a rise in non-interest current expenditures and limits to sustained gains in tax revenue/GDP, due to capacity constraints and difficulties executing federal tax reforms at the provincial level,” it said, adding it expected the primary surplus to shrink further in FY27.
The ratings agency said it expected the primary surplus and lower domestic borrowing costs to lower general government debt/GDP to 68.9% in FY26 from 70.7% in FY25. “We expect the ratio to decline only gradually over the medium term as the primary surplus narrows. Pakistan’s general government interest/revenue ratio should remain very high at 46.5%,” it added.
Fitch also said it expected the current account to return to a small deficit of 1.1% in FY26 from a rare surplus of 0.5% in FY25. “Pakistan’s FX policy continues to exhibit rigidities in our view despite a push towards currency liberalization in 2023, and the rupee has appreciated by 30% in real effective terms from its early 2023 trough, likely contributing to large merchandise trade deficits,” it said. “Hydrocarbons typically comprise between a quarter and a third of goods imports,” it added.